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State-owned sugar and tobacco plantation firm PT Perkebunan Nusantara (PTPN) X is expanding into biofuel production and electricity this year in an effort to offset increasing sugar manufacturing costs.

The firm needs additional income from other businesses as it cannot wholly depend on its sugar division, according to PTPN corporate secretary M. Cholidi.

“Sugar manufacturing costs continue to increase, in line with the rise in sugarcane prices. On the other hand, we cannot increase sugar prices that easily. So one way to solve the problem is by diversifying our business,” he said in a telephone interview on Friday.

The Surabaya-based firm is currently developing a bioethanol facility at one of its sugar mills in Gempolkrep, Mojokerto, East Java province. To produce the biofuel, it will use molasses from its own sugarcane. Production capacity is expected to reach 100 kiloliters per day.

PTPN expects the facility’s commissioning period to begin in July and plans to have it fully operational in October. “Some of our international partners have committed to purchasing our biofuel. In Indonesia, we will also offer the product to Pertamina,” he said.

The facility needs up to Rp 437 billion (US$45.12 million) in investment. Some of the funds will come from PTPN’s internal cash, while the remainder will come from a grant from Japan’s New Energy and Industrial Technology Development Organization (NEDO).

To minimize energy costs in bioethanol production, PTPN will process the bioethanol waste into biogas. The latter will then be used to power the bioethanol facility’s backup turbine and produce 4 megawatts (MW) of electricity.

Construction of the biogas facility will cost between Rp 60 billion and Rp 70 billion, and is scheduled for completion at the same time as that of the bioethanol facility. “This way we can reduce our energy costs, while minimizing our bioethanol waste as well,” Cholidi added.

Besides bioethanol, PTPN is also working on developing cogeneration by using bagasse, or sugarcane residue, to produce electricity. It will spend up to Rp 120 billion for the cogeneration development at its sugar mill in Krembung, Sidoarjo, East Java.

This facility will be able to generate 7 MW of extra electricity, which PTPN plans to sell to state utility firm PT PLN. The firm also plans to establish cogeneration installation at its other mills in the future. Presently, PTPN operates 11 sugar mills in East Java.

According to Cholidi, these new businesses will contribute significantly to the firm’s finances in 2014. Additional income is estimated to reach Rp 1.7 trillion per year.

Meanwhile in sugar, PTPN will increase its production volume to 538,000 tons by year-end, a 8.9 percent increase from 2012. To reach the target, it will expand its sugarcane plantation areas to 76,000 hectares from the 72,000 hectares last year. It will also boost its sugarcane crushing capacity to 42,000 tons crushed per day (TCD) from 37,000 TCD.

In the tobacco business, this year’s production volume will be similar to that of last year, Cholidi said. PTPN’s tobacco is exported to Germany and is used to produce cigars.

The 2013 production volume target is set at 1,926 tons, declining slightly from 1,937 tons the previous year. “We cannot plant too much tobacco because it would lead to oversupply. The current anti-tobacco campaign at the global level affects this industry as well,” he added.

The firm has allocated Rp 1 trillion to finance its expenditure in 2013. It forecasts that total revenues will climb 5.9 percent to Rp 2.51 trillion by the end of this year. PTPN’s total assets currently amount to Rp 3.21 trillion.